On 26 November 2021, the Italian Tax Authorities issued Circular No. 15 providing clarifications on the regulations introduced on 23 November 2020 regarding the content and validity of the elective transfer pricing (TP) documentation available to Italian resident enterprises and Italian permanent establishments (PEs) of foreign entities to provide administrative penalty protection in the case of a TP assessment.

The general concepts clarified by the Circular Letter include:

  • All inter-company transactions need to be disclosed and taxpayers can select the transactions to be documented.
  • It is clarified that the penalty protection provided by the TP documentation must be tested against each single transaction and not as a whole.
  • It is confirmed that an electronic signature with time stamp is required for both the Master File and Local File and relevant attachments before the submission of the relevant Italian corporate income tax return.
  • It is confirmed that in the event of a late return or an amending return, penalty protection can be achieved provided that the Master File and the Local File are signed by an electronic signature with a time stamp prior to the date of the actual filing.
  • If the TP documentation has been timely prepared but the taxpayer has failed to make the required flag in the return, an amending return may be filed before the deadline for the submission of the following year tax return.

Master file

In addition to a general set of information to be included in the Master File in compliance with the New Instructions, the Circular Letter clarifies that this document must also include information concerning:

  • Transaction flows; and
  • Loan agreements.

Local File

In addition to a general set of information to be included in the Local File in compliance with the New Instructions, the Circular Letter clarifies that this document must also include information concerning:

  • Operational structure;
  • Marginal transactions;
  • Royalties and interest expenses;
  • Reconciliation of financial data; and
  • Description of Italian head quarter/PE dealings.